Hellaby tells shareholders to reject Bapcor offer

Hellaby Holdings, which is engaged in a battle to fend off unwanted suitor Bapcor, has advised shareholders not to accept a revised takeover offer, provided first-half guidance for profit of up to $39.5 million, and promised a special dividend if the offer fails.

ASX-listed auto-parts company Bapcor lifted its offer to $3.60 a share from $3.30 on December 5 but said it would not increase its price further. It launched its original bid in September and is aiming to achieve 90% ownership letting it enforce mop-up provisions to take the company private. It may waive this condition if it controls more than half of the shares on issue and gets Overseas Investment Office approval, in which case it would seek board representation to push for a shift in Hellaby's direction.

The takeover has seen an escalating war of words between the two parties, with Bapcor taking issue with the independent adviser's report, and Hellaby's directors seeking an additional 18 cent dividend on top of the $3.60 share price, a proposal rejected by Bapcor. In a statement published to the NZX on Wednesday, Bapcor said it now owned just over 40% of Hellaby.

In a statement to the NZX this morning, the directors said they believe $3.60 "continues to undervalue Hellaby and its businesses" and it thinks more value could be realised through the company growing according to its strategy or through "a carefully managed, timely and orderly divestment of Hellaby's businesses."

The board expects sales between $383-388 million, an uplift on 2016's $378.8 million, and profit between $38.5 million and $39.5 million, from $4.7 million a year earlier. That net profit includes a gain of approximately $34.5 million realised on the sale of the equipment group, and includes restructuring costs of $2.7 million from the footwear division.

"Bapcor has stated that it is only interested in Hellaby's automotive group and that it intends to sell Hellaby's other business groups," the directors said. "The Hellaby board believes Bapcor is attributing insufficient value to these other businesses and will be motivated to sell them as quickly as possible. This would be at a low point in contract resources' trading history and before the restructure of footwear is completed."

Hellaby's chairman Steve Smith said if the offer fails, the board intends to immediately confirm an interim dividend in line with existing policy, which is to distribute around 75% of net profit, and pay a special dividend "to allow shareholders to benefit from the capital gain realised on the equipment group sale." In June, the company said it would realise a capital gain of about $30 million after costs and working capital adjustments on the equipment group's book value from the sale.

The Hellaby statement comes after BusinessDesk yesterday reported that Craigs Investment Partners had written to its partners recommending that shareholders accept the offer. It's understood Craigs' clients account for around 14% of Hellaby Holdings shareholders.

Shareholders were told the price of $3.60 provides "reasonable value against the current Hellaby share price of $3.45, offers a 29% premium to the three-month volume weighted average price before the initial bid from Bapcor, and is above our wholesale analyst's $2.88 target price for Hellaby prior to the initial bid."

The note also warns the Hellaby investment case "holds considerable executive risk given the cyclical nature of parts of the business (contract resources) and the targeted exit of current loss-making segments (footwear). This means the path to realising significant shareholder value from Hellaby outside of this offer will take time and involves an element of uncertainty."

Hellaby shares last traded at $3.45, down 0.3% in early trading and up 17.7% this year.

(BusinessDesk)